Porter’s Diamond is a model used primarily for assessing the potential of a country for any particular business.
The model includes four factors that are essential to competitive advantage in a country.
- Firm strategy, structure and rivalry – this relates to how organisations are managed within the industry in this country. The creation of companies and competition is also important under this.
- Factor conditions – this refers to the country’s factors of production, which might include labour, natural resources, infrastructure and land.
- Demand conditions – this is related to the amount of demand that there is for the services and/or products of an industry within a particular country.
- Related and supporting industries – these are the types of industry which are required for any particular industry to operate successfully.
What is it used for?
This model is a framework that is used to compare countries against one another and is used by companies that are considering international expansion. Taking all of the individual areas as a whole, you can consider all the factors that may be important when trying to decide whether to enter a particular country or region. Uses include
- Understanding levels of resources and skills available in a nation
- Pinpointing pressure for innovation and investment
- Identification of potential alliances in a country
- Change of strategy within a country.
How do I use it?
Porter’s diamond can be used to assess the likelihood of success in a country for an enterprise that is expanding internationally. Competitive advantage in any nation can be analysed using this model. All of the factors are closely interlinked to one another and a good balance of all of these could lead to success. To use it, draw the model out on a piece of paper and consider the following questions for each heading:
Firm strategy, structure and rivalry
- How are companies structured here? Are they more family-orientated? Hierarchical?
This determines which types of companies are more likely to succeed.
- Is there local rivalry?
This is considered a good thing, as high local rivalry is thought to make firms more innovative.
- Does the country have the skilled workforce required for the industry you are wishing to enter?
- Is the technology base robust?
- Are there any unusual techniques that have been developed that could be leveraged for competitive advantage?
- Is there a strong local market for your product?
The theory says that if there is a good local market you will have a national advantage.
Related and supporting industries
- Are local supporting industries competitive?
If so, your company may benefit from lower costs and innovation.
- Are those industries globally competitive?
If yes, this makes the benefits for your company greater.
What are its limitations?
Limitations of this model include:
- It does not assess your abilities to succeed in the country – the four characteristics may be strong, but your company may still fail by not taking full advantage of the opportunities that are available.
- Other factors may influence success – there may be events that could not have been predicted, such as new technological developments or government interventions.
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